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Income Tax Appellate Tribunal, MUMBAI BENCH “H”, MUMBAI
Before: SHRI C.N. PRASAD & SHRI RAJESH KUMAR
Per Rajesh Kumar, Accountant Member:
The present appeal has been preferred by the Revenue against the order dated 15.03.2016 of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] relevant to assessment year 2011-12.
The grounds raised
by the Revenue are as under: Whether on the facts and in the circumstances of the case in law, the CIT (A)
1. is correct in accepting the contention of the assessee that the mistake was occurred due to error on the part of the Auditor.
2. Whether on the facts and in the circumstances of the case in law, the CIT(A) failed to appreciate that assessee reduced its claim of expenditure after specific show cause notice was issued to the assessee and admission was not on account of suo-motto.
The appellant prays that the order of the Ld. CIT(A) be set aside and the order of the AO he restored.
4. The appellant craves leave to amend or alter any ground or add any other grounds which may be necessary."
3. The issue raised in ground No.1 is against the acceptance of contention of the assessee by Ld. CIT(A) that mistake was occurred due to error on the part of the Auditor and issue in ground No.2 is that the assessee reduced its claim of expenditure was voluntary after specific show cause notice issued and the issue in ground No.3 is the prayer of the Revenue that Ld. CIT(A)’s order be set aside and the order of the AO be restored.
The brief facts are that the assessee is engaged in the business of construction and development of real estate and follows project completion method for accounting. During the year, assessee was developing the project namely Kothari Heights and filed the return of income on 29.09.11 showing the loss of Rs.1,76,68,864/-. The assessment was framed under section 143(3) of the Act assessing the total income at Rs.3,91,840/- by making addition under various heads, including current year loss, disallowance of depreciation on motor car, unexplained cash credit under section 68 of the Act for which penalty proceedings were initiated. The AO noticed that the assessee has offered sales of Rs.57,80,000/- under percentage completion method whereas claimed expenditure amounting to Rs.2,35,45,609/- resulting into loss of Rs.1,76,68,864/-. The assessee’s opening WIP was 3 M/s. Kshirsagar Construction Co. Pvt. Ltd. Rs.6,29,16,145/- and during the year the assessee incurred further expenses of Rs.2,11,25,483/- aggregating to Rs.8,40,41,628/-. Out of the said WIP the assessee claimed the cost of construction corresponding to sales declared during the year during the year at Rs.2,35,45,609/- thereby resulting into excess WIP to the tune of Rs.1,76,68,864/- and the balance WIP of Rs.6,04,96,020/- was carried forward.
In the assessment proceedings, the assessee admitted that it was an inadvertent mistake and the claim of the cost of construction be restricted to the revenue of Rs.57,80,000/- and the balance of cost of construction as written off against the sales be of Rs.1,76,68,705/- be treated as part of WIP and carried forward accordingly. The AO after considering the plea of the assessee estimated the income at Rs.1,80,60,702/- and imposed a penalty of Rs.60,19,632/- being 100% tax effect by issuing a show cause notice by rejecting the contentions of the assessee that there is no neither concealment of income nor any inaccurate particulars of income. The assessee claimed before the AO that apportionment of expenditure was wrong on account of inadvertent error and the explanation of the assessee has been accepted by the AO and the assessment was framed on the basis of revised computation of income filed by the assessee.
In the appellate proceedings, the Ld. CIT(A) partly allowed the appeal of the assessee by observing and holding as under:
4 M/s. Kshirsagar Construction Co. Pvt. Ltd. “5. I have carefully considered the facts of the case and the submissions of the ld.AR. I have also gone through the decisions relied on by the AC and the Id.AR. With regard to excess claim of expenditure on the basis of percentage completion method, I'm of the opinion that the mistake of not restricting the expenditure to 20% is a bonafide mistake as it happened by a wrong claim made by the chartered accountant/auditor in finalising the return of income. When the appellant has offered the income at 20% of the sale during the year it should have claimed only 20% of the expenditure relatable to that income. However, the auditors while preparing the returns have claimed hundred percent of expenses shown in P&L account instead of claiming 20% in proportion to the income disclosed. Even though the appellant cannot be absolved for the mistake committed by the auditor, as the appellant has accepted the mistake by filing a revised computation of income on 17/2/2014 during the course of assessment proceedings as the time for filing the revised return was already over and the fact that it has not preferred any appeal on the addition made by the AC, clearly shows the bona fides of the appellant. It is pertinent to mention here that the income which should have been brought to tax can be taxed for tax purposes but penalty will not arise as the penalty proceedings are to be viewed independently as held by a catena of cases. Therefore, penalty levied under section 271(1)(c) on Rs.1,76,68,864 is not in order and the same is deleted.”
The Ld. D.R. prayed before the Bench that the order of Ld. CIT(A) deleting the penalty was incorrect as the assessee has claimed excessive loss by apportioning higher cost of construction of Rs.2,35,45,609/- as against the total sales declared on the basis of percentage completion method of Rs.57,80,000/- and thus suppressed its income by returning the higher amount of loss. The Ld. D.R. relied on the decision of Tribunal in the case of CIT vs. Zoom Communication (Delhi- Trib.)
The Ld. A.R., on the other hand, submitted before the Bench that the claim of apportionment of higher cost of Rs.2,35,45,609/- against the sales of Rs.57,80,000/- which was recognized on the basis of percentage completion method was due to inadvertent error. The assessee itself filed the 5 M/s. Kshirsagar Construction Co. Pvt. Ltd. revised computation of income on the basis of which the assessment was framed by the AO. The Ld. Counsel submitted that there is no disallowance of expenses but the AO has done only the restriction of claim of apportionment of cost out of the WIP which has resulted into carrying forward of higher corresponding cost of WIP to the subsequent year. The Ld. A.R. submitted that the whole exercise of the Revenue is tax neutral as it has resulted into restricting the cost of construction in the current year and corresponding higher cost of WIP would be carried forward and claimed in the subsequent year. Thus there is no loss to the revenue even if the cost had not been restricted in the current year. Moreover, the AO has not recorded any satisfaction in the order that assessee has concealed the particulars of income or filed inaccurate particulars of income whereas on the other hand the Ld. CIT(A) has passed a very speaking and detailed order. The Ld. A.R. relied on the following decisions in support of his contentions. “i) Price water Coopers (P) Ltd Vs CIT [25 Taxmann.com 400 (SC)]. ii) CIT Vs Reliance Petroproducts (P) Ltd [189 Taxman 322(SC)] iii) CIT Vs Somany Evergree Knits Ltd [ ITA No. 1332 of 2011(Bom)] iv) Nayan C Shah v. Income Tax Officer [69 Taxmann.com 256(Guj)] v) PCIT Vs. Rana Sugar Ltd [81 Taxmann.com 77(Punjab Haryana)] vi) Narindera Industries v. ACIT [85 Taxmann.com 241(Chandigarh Bench - SMC)]”
The Ld. A.R. during the course of assessment proceedings also filed a copy of notice issued under section 274 r.w.s. 271(1)(c) of the Act dated 21.02.14 pointing out that AO has not specified the charge on which the penalty was proposed to be levied and further submitted that in absence of 6 M/s. Kshirsagar Construction Co. Pvt. Ltd. non specification of specific charge on which the penalty was initiated, the whole proceedings would be rendered illegal and bad in law and so is the consequential order. Finally, the Ld. A.R. prayed before the Bench to uphold the order passed Ld. CIT(A) by dismissing the appeal of the Revenue.
We have heard the rival submissions of both the parties and perused the material on record including the case laws cited by the parties. The undisputed facts are that the assessee is following percentage completion method and being in the business of construction and development of real estate. During the year assessee was developing the project Kothari Heights. The assessee offered sales of Rs.57,80,000/- as per project completion method and claimed expenses to the tune of Rs.2,35,45,609/- resulting into a loss of Rs.1,76,68,864/-. The assessee’s WIP was Rs.6,29,16,145/- which was further increased by Rs.2,11,25,483/- on account of incurring expenses thus the aggregate of the WIP became Rs.8,40,41,628/-. Out of the said WIP the assessee claimed cost of construction in the current year to the tune of Rs.2,35,45,609/-. This has resulted into the excess claim of cost of construction out of WIP to the tune of Rs.1,76,68,705/- and the corresponding reduction in the cost of WIP to be carried forward for being written off against the subsequent year’s sales. The assessee during the course of assessment proceedings, on being pointed out by the AO, filed a revised computation admitting the inadvertent mistake in claiming higher cost of construction during the year. The issue before
7 M/s. Kshirsagar Construction Co. Pvt. Ltd. us is whether the claiming higher cost of construction out of WIP which is resulted into lower WIP at the year end to be carried forward in the subsequent year would amount to concealment of income or not. Looking to the facts and circumstances of the case in totality, the whole restriction of cost of construction out of WIP in the current year to the tune of Rs.57,80,000/- and carrying forward the excess cost of construction to the extent of Rs. 1,76,68,705/- is tax neutral as it is not a disallowance or excess claim but a reduction in the claim of the cost of construction which has correspondingly resulted into higher cost of WIP to be carried forward for being claimed as cost of construction in the subsequent years against the sales of the said project. In the case of Price water Coopers (P) Ltd. v CIT (supra) the Hon’ble Supreme Court has held that no penalty can be imposed where the assessee has committed inadvertent and bonafide mistake. In the case of CIT vs Reliance Petroproducts (P) Ltd. (supra) the Hon’ble Supreme Court has held that merely because the assessee has claimed expenditure which was not accepted or was acceptable to the Revenue by itself would not attract the penalty under section 271(1)(c) of the Act. In the case of CIT vs Somany Evergree Knits Ltd (supra) the Hon’ble Jurisdictional High Court has held that where there was a bonafide mistake on the part of the assessee, the imposition of penalty is not warranted where the Revenue does not dispute the same. In view of the said facts and the ratio laid down by various courts, we are of the view that the order of first appellate authority deleting the penalty is well reasoned and correct and there is no need to interfere in the same. Accordingly, we dismiss the appeal of the Revenue by upholding the order of the Ld. CIT(A).
Order pronounced in the open court on 14.05.2018.